Earnings call transcript Q4 2022

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Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Keurig Dr Pepper’s Earnings Call for the Fourth Quarter and Full-Year of 2022. This conference call is being recorded and there will be a question-and-answer session at the end of the call.

I would now like to introduce Keurig Dr Pepper’s Chief Corporate Affairs Officer, Maria Sceppaguercio. Ms. ahead. go please Sceppaguercio,

Maria Sceppaguercio

basis, hello for this with the discussing affecting an we’ll And rates currency a excludes and previous we press be items adjusted on performance release fourth our reflects everyone. you. constant morning growth Earlier comparability. issued quarters, which Thank quarter. Consistent

basis The operating performance adjusted with insight provides believes company the into additional trends. investors that our and business

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will expenses business we and policy asset removes concept non-operational change of disclosed previously these to also BodyArmor, to stock of In for the recovery which ’XX, of impact reimbursement litigation leasebacks, included items. compensation. gains the sale items interruption underlying on accounting insurance related a performance, speak a Today, in

Strategic Relations predecessor has most at finance, XX the Jane as after our that some Treasury. KDP years this know led and Investor and from is and family this and week IR Bob more who commercial with welcome Financial Here morning President well where decided KDP street, Investor we off than Jane new Initiatives. are team, companies Officer, you many finance with I'm us of as the of are take Vice of she her today Gelfand, to functions replacing is time our and Alexander, who travel. Chief Gamgort, us for recent to Priyadarshi. results including with and time Steve CEO, role her including discuss a as confident Relations Chairman number excited successful our Wayfair, to Sudhanshu Jane on Also in IR and

agreed We transition. the to support on Steve April to has to that are stay pleased

And morning detailed statements, Safe statements These update subject to to differ Private undertakes and Harbor contained may uncertainties finally, a statements could this and risks XXXX. our with the materially, discussion are of of the to Securities company's obligation to discussion subject forward-looking the of Reform which based no results risks cause include events. that number is provisions in Act the subsequent uncertainties of Litigation the actual these company these A and upon SEC. filings are

it I'll to over hand With Bob. that,

Robert Gamgort

beverage to available Thanks, and of our by our modern to capabilities portfolio Maria, and more brands and good In advance at a after-market to sale. by XXXX, beverage our of enhancing vision unique needs every make consumers, reach expanding continue morning, we our everyone. point company and occasions selling

had EPS diluted revenue with twice. Our full-year QX of by many by earnings or expanding were our and you call, above guidance Since adjusted to financial XX% the engage with results line X%. in opportunity growing with we our

agreement mind top Directors, in person Management where which trends which today's which the Those for regarding in the sense of call. distribution Nutrabolt, Board mid we you categories will with with upon we answer our what's and provided recent of we us and fireside Team a build investors, our questions good during compete. on event, during First, in- at discussed conversations met CX in including chat, of our investment the December early KDP again, -December and our

thoughts value our over specifics and and on with discuss providing macro we how in of we and offer faced environments by full-year continue our follow XXXX, the capital both of XXXX the policy. created QX past category discuss and how see evolution perspective will provide in on start we guidance XXXX, shaping strategy shareholder up our I'll year the allocation Sudhanshu terms me macro winning. to environment XXXX and key for detailed results, on on metrics more the

supply where a most yielded replenished ago, in seems and implemented in still reduced XXXX it depleted wave inventory chain a consumer late demand we our service XXXX supply inventories programs availability range that shortages. XXXX primarily While like beverage with lingering driven that early our supply We of long strong disruption, business customer felt where effects that labor acutely faced time the levels. started in strong had a our and portfolio of with impact recovery We COVID by coffee XXXX. we final improvements

By growth, margins. was revenue which QX, we enabled were supply which both and the lower quickly volume, industry inflation in compete, by the at pricing COVID Velocity increased higher labor, our significant transportation. strong That outpacing and concerns driven chain ingredients and came in supplanted held and up in well categories around materials, by disruptions but pricing.

faced into on year. it we consistently in impact actions lagged pricing across implemented and of inflationary year. our of XX% our portfolio P&L. the Pricing realization the was timing Yet total strong XXXX accelerated the escalating throughout above cost double-digits. averaged the And Store perspective, we low that far inflation our the expectations in going

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are are steps proactive continues We strength consumer our and ensure beyond. taking and closely XXXX brand monitoring to behavior into

benefits of in forming XXXX. ability to continuation obstacles and have of in unique a COVID did in in the consistent market strong XXXX navigated we changing punchy context, sound onset since year challenges to of it and the environment as wide a to since manage all-weather we our an this in and This broad more the shareholder XXXX. we have our our of In set reflects routes model. bite; discussed deliver every is portfolio XXXX than course, of returns rolling Of of unpredictable KDP business the range is

in five returns have allocation we've beverage end, rates. environment evolved process deliver also consistently Toward can our commitments with that years, been that that In macro high a our a and well-capitalized interest to we and a company today modern contemporary the be created capital balance rising to over KDP quality, addition immersed to reflect policy an that a attractive, sheet. delivering dependable ambitious mature changing of integration past marked transformation by more with financial

and we advantage to of us drive all while our transactions, our us, returns shareholders. enabled assets which monetize integration the through We compelling stage, Using had During sale a and strong levers transformation still brands. available non-strategic took focus simultaneously opportunities invest, available delever to in rapid building for capabilities deleveraging. and on to strong leaseback investing

year. from non-operational shift the and this benefits in starting in to underlying use will reduction means we As growth operational activation, transformation we XXXX. integration change adjusted growth exceed of planning our step are a That for our

adjusted guidance to better done. course, and underlying basis to the results be time-to-time strength on report highlight business. a of will will performance you for will Of we the from our metrics our operational also provide always But with continue same sense we of we've

hallmark a remains KDP. of flow cash Strong

our targeted cash As to we ratio or discussed deploy improve to December, leverage to our we long-term in times below. X.X plan

While to cash attractive shareholders. still funding strategic of growth projects, return and

a pressing outlook. with mind, the in from I'll discussion most to inflation. the learnings year, from topic of our XXXX Starting shift With industry XXXX last

unprecedented that assumes our three over XX% plan lifetime. past of Our will cumulative range, the moderate rate in the to the rate clearly years a inflation inflation mid-single-digit to translates of approximately

late to Regarding doesn't Such underlying the inflation recent reflect of outlook industry prices the cost delivered this is lead to XXXX. The a dropped certainly be we and the spot basis total some don't spot cost XXXX, price declines for deflation. believe seed where might in inputs the buy coffee reality case commodity is us. on could key in

our However, such fully the everything in freight and charges coffee up which costs, was differential, meaningfully. fees, sea landed premium broker up coffee as includes

And inflation. continuing increased our in covered in not Labor we impacts continue and will continued discretionary which growth The offset have we're key impact upped of reduced P&L the implemented to additional productivity, XXXX address revenue area in flow areas, pricing. our continued pricing actions fully We've to during are margin gaps. XXXX. of pricing. inflation actions some see to game costs by persistent yet To management another realization into where our is inflation,

in The combination margin that gross of for demand. we financial of health XXXX, consumers realization means view A pricing XXXX, price in compete. returning is XXXX and impact margins on inflation in to shift and moderating for yet the improvement year-over-year the the the With continued key for gross in categories us point its conversation American which elasticity focus we higher in not XXXX levels. but expect

to of elasticities believe XXXX. net pricing be combined of ensuring important modest by we the yield It's will but proactive in year-over-year to Therefore, realization X% still lower, growth in it's that strength investment growth XXXX. brands increasing our in revenue prudent positive also KDP in with our continued of approximately expect

industry aware, been restored. during marketing many reduced were budgets all fully are and we yet As COVID haven’t

be of our efficient segments in our behind improvement time XXXX to strong the X% of support increased is will year-over-year investment right we Even investments absolute While have enable growth. us gross increase the the our revenue operating benefits significantly headwind learned to with growth XXXX. and a comping as significant key more in in non-operational improvement brands, our margin to lineup with as well spending, combined with deliver and innovation. brand The income brand

to high X% specific the our XXXX to we morning previously disclosed the Taking company the XXXX of growth all end macro EPS X%. account, for adjusted of toward into from by items non-operational factors this grow of and algorithm. Removing long-term is that implies expect EPS impact adjusted discussed

Our our years. expectation cold rooted five beverage, business past is driving and the for of flexible unique XXXX is on value creation in strategy success our over in In growth. focus the continued strong

gains XXXX, renovation marketing, through continue hold and premium we water. market segments the total strong past over the In build brands few core achieved years CSDs in as in or share and end upon liquid and to such execution. significant continued brand key beverages we refreshment First

agreement nonXalcohol athletic our filling as new our CX space with such through you innovation our relationship with expansion well as brewing Red our strategic portfolio as into Bull in white Beverage. partnerships in for better Second, by investment for foodservice Mexico, drinks partnership in Tractor in such as our through with beer and and platforms Energy our and Nutrabolt

our are and effectiveness direct distribution we Third, by system. omnichannel enhancing our and system, selling e-commerce, including distribution food owned of and one company store the leaders, of where the beverage

our past -- DSD key brands acquiring and driven market distributor a stronger market across investment consistently several years, have the market Over through all direct tools have territories, to route capability which and segments. and to share in direct we built strong capabilities performance of

we In are growth. systems, coffee focused on

First, household system growth every year. penetration for by the Keurig driving

Given to the of households, the number addressable future. sight large into continued household remaining well of have line we growth

As households, built we more manufactured installed enter the have annually. than with by along we of consumed which our in of XX cups U.S. KDP Canada million installed base billion base coffee XX XXXX,

in welcomed coffee of brand and of system. added roster the first the new brands. pioneering such black-owned Bold, coffee & most expanding community XXXX, by Intelligentsia, coffee BLK one Second, coffee's and back partners the as distributed innovative specialty we and Keurig brands nationally

expanded has K drive consumer such brewers formats by over and lineup and we + brewers -Café brewers to our iced coffee XXXX, as incremental of new from and Keurig connected Keurig’s creating both which with help and Keurig quality Slim expanded ICED In which revenue to of our connected pods. outstanding growth households beverage app, specialty occasions. and availability make with Smart, platforms our Third, non-connected beverages existing profit expanded the home barista consumers new expanded and of and received introduction reviews, works professional brew brewer at the connected

K-Ice free and including and area expanded ratio cash XXXX, the cash dividend growing opportunistic iced and and flow. dedicated by supported of flow marketing pods share machines of enables significant finally, extraordinary potential focused within be retailer for M&A focus KDP's strategic our repurchases will In our allocation payout capital a returns partnerships, And procuring incremental free support. with stated through shareholder XX%

more With depth. to Sudhanshu that I'll it XXXX as to results important and discuss context, our outlook in hand over XXXX

Sudhanshu Priyadarshi

our value on significantly Thanks, grown opportunity targeted important investment a I everyone. business will for the Bob, has the three conviction represented and understand better. XXXX perspective months my good on because I I’ve reflected look conviction we KDP This the joined and be to year back my the learnings company and the results, believed unique as implications in morning, creating as and XXXX. ago,

numbers, the specific category. category. long-term into in systems, growth an KDP like segment in on before coffee is primarily home operates with Starting coffee coffee perspective I'd the U.S. single to segment jumping of the winner, the home the at are growing drinking share majority attractive my and coffee The serve the at Canada industry all home clear is at share vast of where we comprises leader. consistently occasions. occasions and Coffee

has decline. contributors are time concurrent several spent consumer challenge in a in to home taken to with as There We that has at a all XXXX know from mobility been XXXX, of significant at and and see significant both for been forms that consumption coffee, the impact acknowledge of shifting noise the significant is categories, causing volume we it at at home, increased believe from between investors signal home There elasticity are home quite at which the growth play in XXXX. and occurred spent for XXXX consumers, to This XXXX which away XXXX. consumer to this noise. unprecedented. coffee factors home separate time began After primarily we pricing actions due deceleration globally coffee reduction and coffee we home due primary the in a correlates at in in

Specific at major all U.S. bags, trends, with global and the declining, volume with total forms cans the consistent including in coffee X% to decreased category the serve. for single IRI home

among coffee sub-segment. total demonstrated it highest the coffee at single despite gain KDP's brands in However, outperformed, licensed serve single increases strength price share and owned in enabling XXXX, consumption. having home selective of to the

its quarter, the position representing highest With since share before COVID. fourth

at and in in parts Driving strength play smaller were half that by originated volume promotions as in strong in We challenged reinstated the coffee the checks. XXXX where restored. time was comping as well part U.S., innovation stimulus home, consumers fueled the its by saw primarily against as XXXX a with was second in XXXX and in trend that by supply plants brewers growth at similar

this gain from dynamic, makers not of Although share brewers coffee all immune a also curate in XXXX. compatible

Moving to financials. the

pricing declined volume pricing the the COVID. the revenue X.X% volume. X.X% segment year with X.X% increase since mix up year, X.X%, For X% benefit the onset the Brewer advanced reflecting sales comping experienced also growth in of double-digit Product each and volume in grew net down a we X.X%. have and of XXXX

the performance household and our in new million goal are our added penetration brewer long-term with annual we not coming Innovation than Keurig but of our what's more is key system XXXX brewer As above in is excited about XXXX target. we sales, you innovation and rather X slate XXXX. the know, households driver of modestly to a penetration household pleased and

While inflation operating solid, in exceeded, compressing which top realized was line was net XXXX systems as income profit growth margins. challenge the declined X.X% pricing in

gross pricing in improvement a the between going We inflation expect XXXX. to forward, and improvement an year-over-year in relationship leading in margin

growth. coffee XXXX. operating KDP outlook operating growth in to systems X% income non-operational income XXXX, specifically, the this coffee and Removing systems X% growth XXXX X% to sales to our of net higher in items implies X% projects But deliver impact

strong the inflation, expect margins, owned relationship strength We a between which be the particularly half. half of stronger reflecting the brands pricing in the second KDP's of and licensed a year, and in recovery will and significantly than first favorable

best-in system sales is -class $X are Keurig a consistent margins net with of OI above billion the in unique, XX% and scale While business. its CPG

growth we same our business. today sharing we year and you the base, as you with operating any existing manage performance, extract to translates for coffee using are and think sales incremental it the That would makes net continue ahead. to for outlook CPG access the conventional into metrics systems which to I drive income other installed from While business sense household value the

following XXXX Our relevant factors believe are that reflects consider. outlook most we the to

half. First, expect lows, while pre-COVID consumption still for a we in headwind past mobility it below home represent XXXX has remains recovered recovery continued the XXXX in significantly and coffee at to from especially its levels

in the taken a industry's which modest of half XXXX, XXXX benefit impact a volumes. Second, carryover negative on the have actions will pricing will first have in

have As early these although importantly volumes coffee in outperform. during continues discussed, to declined single trends total XXXX, at category continued and XXXX home serve

small we mass key brewers. environment evolving retailers a for impacting our Third, specifically challenges and with as rapidly appliances see retail department the availability in and of

such targeting to slack. e-commerce channels We up are alternative the as pick

However, curate long-term coffee the expect outlook believe, modest outperformance we our in no expected decline brewer XXXX to a bullish These is serve or reasonable have category format. year-over-year in our an XXXX. way shipments influence which alter in will the single on for for factors, results,

an well Beverage XXXX XXXX. net grew X.X%. business, Net momentum. Pepper in reflecting drove Dr with in and the to now volume strong which net exceptional Concentrate incremental year beverage brand Zero and during the XX.X% Dr strong XX.X% Pepper in-market enters XXXX pricing Zero in Sugar had volumes strong up Sugar distribution performance XXXX, sugar the expansion cold and up grew Dr realization, price zero performed velocity very Pepper in gains. sales with and largely Turning support. our segment, reflecting the a dollars outpacing of retail growth strong double-digits mix each

Beverage grew bottler only shared relationship minimally Concentrates adjusted reflected of the margin offset actions structure business. favorable operating as and income the pricing by of the inflation was the benefit given inflation between pricing This XX.X%.

facility, for KDP. we benefited and year, smooth start-up a opening had facility concentrate the the During a concentrate new of also which successful of dual source XXXX. The from Newbridge our in represented Ireland manufacturing

beverage Pepper to the concentrates launch Cream. strong XXXX, to given Dr about quarter ahead business our the of we be and including particularly Looking Strawberries first continue excited offerings, innovation

expectation achieved growth response in to of lower the inflation. versus segment a strong XXXX. income expected XXXX This growth operating year-over-year post of to the in expect in benefit our level XX% reduced reflects We for a moderates pricing that

This net we beverages with strength strong Elasticities business pricing our XX.X%, the our expansion strength the for the to sales grew sales where in remain leading XX.X% year, mix categories, in Continuing representing is XX% pace, our of with up performance X.X%. of our evident most due in-market and retail brand share. portfolio. LRB U.S. of share volume total modest up to a gained for packaged we

ongoing continue of us share significant with the since driven has growth share execution, to two water Coco. hydration, number and achieved CSDs, Vita polar which premium in We XXXX our maintain pleased in gains enabled our are to position core strengthen strong cumulative by in-market and

Polar approach now the win-win example the great national two in in is Our number partnership water and as partnership all channel is of channels. with gaining other Polar grocery our ground a sparkling brand is

the is for category, which well volume XXXX, growth X.X% as private packaged juice negative label. in growth for net X.X grew In share an both a Mott's to its double-digit the our operating Adjusted as largely as strong standout, gaining were competitor in productivity in beverages in non-operational continued be year competition. year-over-year a and primary by sales and pricing category inflation, a driving impressive points offset and income

Systems, for to ability pricing adjusted inflation timing in compressed for despite beverages year margin more our to operating and Similar realize the packaged beverages coffee than due to systems. the between disconnect in Coffee core pricing

with exited Importantly, year strong packaged the beverages momentum. underlying

to Turning XXXX.

and the and XX% strong new XXXX will plans. expected a energy CX is benefit The is packaged sales be growth pricing beverages tracking to announced select growth that also well our significant carryover partnership for net sales moderate as than realized distribution recently versus Net XXXX. actions our drinks. expect benefit less from We for the pricing in underway impact the from integration in

first stages Strawberries X% be Pepper in with for a innovation year beverages garnered share Cream, launch a the the will In Dr has strong QX response, the lineup which a active early and strong highlight achieving CSDs very launch. consumer has of beginning of planned the quarter. Packaged an CSDs, the of

variety offers just in incremental that addition, highly a launched we CORE nutrient new In line benefits Snapple distinct we March. Hydration+, functional and enhanced elements launching our water a are for

between business the be partially be to to by is new and segment's innovation. this a with investments. expected marketing increase relationship the inflation in to investments expansion, to by margin margin to support expanding, Packaged better and operating underlying XXXX and pricing even plan Beverages strong core marketing performance driven expect due we stronger, gross We income offset

both outstanding a up sales Beverages America with America beverages. strong net of volume Ending Latin delivering mix another significantly. and growth XX% with had year, balanced pricing net Latin and

a share. Our market was gain a performance double-digit and sales standout significant by increase was also delivered double-digit strong growth sales continued and in to growth led Peñafiel, Clamato with a which share.

grew strong Red growth segment commercial the distribution XXXX, momentum strong plans significant XX.X% marketing drive reflecting investment. a Adjusted continued a and incremental more In line in distribution expect and Bull reflecting operating performance income than increase for we productivity in Latin XXXX, to offset top Beverages, Mexico. and the strong America inflation partnership our that continued with in in-market

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fourth profit to and grew grew $X.XX. basis but in a gross versus the quarter and contracted margin XX points. points, adjusted Adjusted quarter expanded basis. EPS XX% operating the XX.X% income gross XX% of Adjusted sequentially basis margin XX operating XXXX almost improved Adjusted year-over-year on advanced

basis to with due mix, the and grew the reflecting net gross in XX% double-digit points, strength our productivity XXXX full-year and almost to growth Turning gross net lagging margin our portfolio. results. both timing contracted price pricing sales of grew and of XXX profit company Adjusted X% volume Total inflation.

inflation in grew warehousing from double-digit gross X%, and growth contraction strategic company's in investment benefit asset net significant transportation reflecting a sales offset margin costs. program largely and in year-over-year by income and a the operating Adjusted

adjusted consistent guidance. with points. for XXX basis grew $X.XX contracted to result, Adjusted year, margin X% EPS the a operating As the

billion to of flow and was allocation to our cash $X.X generation cash flow of and our XXX%, cash balance cash XXX%. XXXX in Operating totaled flow well free for $X.X the capital Free billion. grew year ahead conversion approximately now long-term Turning evolve sheet, flow policy. exceptionally at target

creation strong tool. a value generation powerful is cash Our flow

we As Bob discussed, our in environment. education macro the reflect capital policy evolved to changes

rate interest has hurdle for the deploying over strong powder. and liquidity rate cash ample the maintain increases With and appealing is increased, dry it past our to year,

to established leverage discussed a end our times believe management to we of times, As times XXXX. it fireside time reduce to sense leverage chat, at target long-term our during makes over to of X had December which and compared X.X the continue X.X

From and is allocation internal payout our value addition well top as growth strategic investments, M&A opportunistic a dividend capital growing and within perspective, to value-enhancing in along organic stated as with target. partnerships, our return share to priority XX% creep, share shareholders manage repurchases our ratio to

Our not focus and do near-term. M&A the partnerships we our a represent investments, of significant will expansion integration and in XXXX use so to currently XXXX cash be of expect the in

already action updated to in XXXX capital began our Our demonstrate allocation priorities.

equity and year, During investments course attractive athletic peak our the new in of and beverages. of we acquisition billion AT brewing stake XX% the almost in Nutrabolt, in growth invested tractor $X the namely equity platforms,

a We number territory also to with our further continued to deals and strengthen DSD effectiveness. of scale our network increase

the time, shares. $X.X quarterly we same repurchased At of increased dividend, in by September, our we billion the through XX.X million shareholders which to returned and opportunistic X.X%

close will outlook our XXXX. with I for

versus year-over-year currency representing EPS constant X%. X% of XXXX later a net XXXX. expect growth sales and X% of growth improvement growth We to adjusted The

currency translation sales adjusted net headwind to EPS X.X-point is and approximate to growth. Foreign both expected

expense $XXX rate $XX million, the EPS our the $XXX Included including approximately of the are adjusted growth. Removing in the million and environment interest to million implies range the significantly guidance assumptions: Nutrabolt to reflecting non-operational impact rising of in this interest financing higher related following transaction. items,

and CX Nutrabolt, expect year. partnership, for our be any is and material to expecting earnings previously we XXXX therefore, not Regarding the transition investment sales on we expected distribution from for some year agreement discussed, are benefit net a as impact this

do approximate the income equity income expense. This income. and to Nutrabolt flow in to interest method equity expense method However, our Nutrabolt-related million million, which will we XX% non-operating $XX from other through $XX stake expect offsets

EPS even at first largest be highest shares to a reflecting $X.XX marketing weighted From we the is average increase have roughly will tax the approximately timing approximately quarter that our QX billion. rate to outstanding and of year the Diluted of estimated the expected the XX%. ago, expect effective a are The with standpoint, be benefit smallest inflation, productivity year. belief rate for

QX non-operational ago benefits the comping significant will in also be year period.

moderates to the We strengthen balance productivity benefits the in as and growth expect EPS ramp. inflation of year

I Bob closing will comments. over for turn to it now

Robert Gamgort

XXXX pure-play on We beverage consumption occasions North formed American trillion company play KDP market. beverage year. in alone, are U.S. focused X.X as a the the every there In in

Beyond to is has and population and satisfy needs doesn't consumer where do What purchase beverages. will beverages. nor growth, that change beverage consumers the much, their fundamental for needs continue change number consumers which formats choose to their

view modern XXXX satisfy of to we've an which opportunities, beverage able our portfolio beverage occasions been in leading reflects additional Compared consumer better beverage a of needs, growth X to our and innovation, By rate. holistic XXXX, served all to we billion through renovation new partnerships. executing company, concept accelerated our

in business occasions trillion-plus continue beyond, model excited We North XXXX more the we'll growth capture remain ahead. even of year America. the each In to and our about opportunities beverage significant leverage to

I'll the to for the questions. over operator call now turn

Operator

you. Thank

session. ahead. Today's will at from Carey comes Wells We the Instructions] Chris question-and-answer begin Securities. [Operator now question Please Fargo first go

Chris Carey

Hi, morning. good

Robert Gamgort

Hey, Chris.

Chris Carey

So I fundamental one just than question. want to clarify thing a

reflecting this So range, investors. I and the comments call changes clean earnings been well base. that you're dynamics forward are some potentially clearly, these have with your of a specifically sticking the the going point making adjustments guidance on non-operating from gather with aware

forward. And offset, crystal kind the of -- will The an use wanted be of I past. that Then be just sorts dynamics question. I'm look can sunsetted. every about we be there's I of at was will a it have appreciate clean thing these be somewhat fundamental these of but sort to to of but programs kind going hearing? Obviously, non-operating going quarter, this. so results these And of Is I clear I investment what contributor. a And

Robert Gamgort

Chris. Thanks, Yes.

is the the As or and the complete, we XXXX. mentioned phase. really today, transformation activation an in from we've since prepared That been and period an merger since integration phase the moved integration integration remarks, in to we've in

that about investors current to a contemporary, with said, that so is build that a deliver causes we consistent company the can KDP reflective one returns think And reliable that over and I more of also how is environment are time. that us by as mature

use why transforming, past we're We're that's the in some sense a non-operational delevering when to of benefits business. heavily the made in it also of and these investing in mode So integrating.

in committed significant And we're of here, we look as change direction to the non-operational continue a use future. step that forward But in in on benefits XXXX. moving actually making the XXXX beginning we're in in

the I from think investor a of in most number XXXX is perspective reliable important valuation. that EPS, the be guidance our focus midpoint is of the which reflects the could $X.XX that thing an So good,

Chris Carey

Okay. Very clear.

Just -- on I'm inflation expansion. the and to for that context trying marketing. guess, you're be I of investing gross for in you saying an that also, to frame into expectation you're margin the gave going outlook

there'll So So something on like is a top sort way increase. then of that's a and to SG&A marketing about the inflation mid-single-digit that overall quite inflation. of be Is of right think that? COGS that a and bit

need to gross offset to trying So that. I'm frame to expansion just margin the

would helpful. any So there context Thanks. be

Sudhanshu Priyadarshi

not expect is we a go Sudhanshu in we would right, But invest XXXX to we to this said Hi, improvement Priyadarshi. like gross Chris, will it our margin, marketing. you're but substantial in before, back Yes, level.

in marketing. will be reinvesting we So

the all gross to So through you flow way. OI margin not the see will from

You should December some that in brands, flow-through, fire-side we but our chat. during money talked our we and will see investing start expect we

So that's our plan.

to of improve. will we won't margins gross so them through reinvest OI. right, you're in But marketing, you -- see yes, the all will So flowing

Operator

And ahead. Bryan Spillane with comes you. next Please go Thank today BoA. question our from

Bryan Spillane

everyone. morning, Thanks, operator. Good

Robert Gamgort

Bryan. morning, Good

Bryan Spillane

consumers Bob, of the you a we're in appreciate brewer the so getting us small in year, a of Systems, the question just you I this holidays? kind much the couple perspective of can they're both how the terms think been guess, bit think outlook at bit about talk a consumers their the last of for do about whether disruption, just retail? if lot do pull maybe at appliances being been was -- much Coffee little holiday making how of But discretionary some think bit of of of gave spending has and hey, around disruption questions dollars. are decline my a do on I you of you sell-through, of forward choices about you years. perspective how a could just just ‘XX. other little is And How but retail you in it a -- the for there's is much function sensitive about Or give

Robert Gamgort

Yes. Good question.

of replacement about there's It's household. causation that household sales times had mean I brewer this or the quarters not number It's while in of penetration, past, it's a upgrade. brewer we're of in by and direct is selling And business with a start buy we've the a me the in there Let sales what that and up driving is past. said household where in We're are a that not three the when a penetration. we've existing between the an of especially new of reasons there something talked were correlation an number brewers. significantly, brewer times brewers. I And consumers business -- is

it upgrade, And brewers on it so example. there's you can because that household for a penetration, see and no impact has number delayed somebody an down, factors has means of that sales

So delivering XXXX out versus two we households X things in XXXX is in new million to were and obviously, point XXXX, XXXX. in QX

in to XXXX expect X obviously, So million households, you with sell fewer would brewers.

our channels with is in and we're specifically. the growth part customers retail as The drive in in we to mass And seen we script, working of well. and our continue that specialty brewers category whole them a while other environment, to challenged have to particularly referred some

is to demand to opportunities consumer where that, the look up that elsewhere, A know, you towards other smart continue it's of think pick consumer for to demand e-commerce. also moving. moving We is as lot

of of all question that, other said small KDP up think Having or consumers picked choices. making it appliances. makers The is coffee brewers of brewers all and on your cured reality of I share

to buy in it, some in place as decision small on a something not general. pressure been but clearly it's So there's appliances

rebound but due some to described the remarks. effect of that that of is some pressure post in the And it some is COVID, prepared we also retail

Operator

And with Please comes you. from next our go Jefferies. Kevin today Thank ahead. Grundy question

Kevin Grundy

pull just Coffee on -- penetration, everyone. business, Bryan's look household mid-single-digits together, good your this kind question, to succinctly, morning, this follow-up the as but grows is term. you in Systems very of this business the expectation confidence Great. Thanks, at is Bob, longer that your

it's debate important, really key that's think a because I for the stock.

then think much. you increased And maybe of well. the would there areas as key just spend, unrelatedly, bit helpful of the for my on just a magnitude folks just follow-up advertising Thank color that marketing I be more and on Bob, increase. very the little

Robert Gamgort

Sure.

X per indications As years. households the penetration the number right for two actually the XXXX. year previous for forward. slightly we've is going that is million assume long-term million is target than our delivered talked penetration in that did deliver our this still We All year. $X in significantly than more more to We about household household

and first But period half and is context That's forward, about then been the what you households also, there's fireside And gave view. going where recovery between we trends. the of And at some your question still we we COVID talked December there. million the in of how period. shift X mid-single-digits about in we have chat. the COVID absolutely are. the looked We mid-single-digits the long-term And

Sudhanshu Priyadarshi

I the take can the take I Bob, question. marketing -- can

will we So increase as and learnings XXXX, returns marketing but brand spend. much said, spending decide we've our which in our will and how marketing

decision and in. during target, don't make we top invest brand our we then of watch brands formal have elasticity a marketing which we'll year, we will the So the and term

Operator

next Thank our ahead. Please you. go comes question And from with today Lieberman Lauren Barclays.

Lauren Lieberman

morning. good Great, thanks and

about the talk know expectation gross expansion But on Because we and leaseback that forward for way to we want want want margin you've understanding for had in quarter. -- gross the to did been other performance another was of gain. year. and had margin about talked fourth So next the my the non-operating went I plans sale and then kind we that I look to items

margins to Thanks. people of things changed gross the I on just went improving understand with already. kind be for important what to an think So it's this expectation quarter for when versus that

Sudhanshu Priyadarshi

So Lauren, Sudhanshu. is this

So especially segment. specifically, in -- coffee the pricing inflation, build, it to saw for still QX lag the we but continued

was the was our last So for higher-than-expected. year inflation during script. XX% other that mentioned, full-year And as issue. that's But Bob our

did we were So we've expecting improving, that in seen what not that see we coffee in relationship QX. but

So gross committed relationship you're pricing that our inflation the and between will -- in we are but margin in seeing expand. that is that's improving. reason And XXXX,

Lauren Lieberman

that is that, kick year Okay. Or beginning to in the in to starts a you in? do think? that it And QX is going later be

Sudhanshu Priyadarshi

be year. later in It the will

As part. we buy we don't on said,

remarks. So see that it that you but takes in half. second to my prepared the price in six to included, nine months see talked the will about I And

see So as you in second will commodity. will improvement that in half, on the see gross moderating benefit deflation, -- more not of deflation commodity the inflation you we will margin see the but

Robert Gamgort

we there. perspective, good first part the we then is inflation Yes. obviously, quarter from the look, have for improves a the in And early from is of pricing and highest -- and visibility, what year commodity for the see where coffee it

Operator

at today comes our next Please from Edge go ahead. Brett Cooper question Consumer Thank And you. Research.

Brett Cooper

morning. Good Thanks.

a was utilization be the of to in bottling is desired step needs be? is Or brands want You've get adding your to you levels? talked to that your where more about raising to to NutraBolt underutilization sense there a hoping of system. done how much to like to I get of that Thanks.

Robert Gamgort

Yes.

sizes you store higher in have we've right, system the because are you're and is part that with effectiveness, system. of frequent distribution allows then you you the to fixed that improve high-quality we second company-owned direct to through that, run more get When visit. it more cost volume that significant a what past leveraging about direct is And I do because what the asset a base. our get store we cost -- your in opportunity store against benefit, higher think that talked drop tremendous

where heavily So energy the business the on C-stores. is we've large our a incredibly opportunity in by the where opportunity largest the fact gap And know, we was had C-stores. but in biggest C-store in strong energy. most a had dollar area We're within one as we basis that's have segment that has the you outlets, been driven

white us area, that has which talked we direction. that described yet space a in significant as our the or feel is in in some growth. step our of has increase other where business about like before, a CX And to And I it feel the like allows getting we're in tremendous just really the And we That on areas started benefits have So space we we're for trajectory that. C-store earlier. portfolio. we done not scale

front come there, opportunity to in So more more us. much much of

Operator

next today Bonnie ahead. Goldman question And from Herzog you. with go our Thank comes Please Sachs.

Bonnie Herzog

decelerate full-year. a question guess, weaker Good volumes, pod had on stack bit I you. on basis for Thank expected which a three-year morning. and in a were than, the the I your quarter did

So about I I more this? you're touched you but attach would rates this, your also declining. wanted on are understand color be thinking there better know And how guess helpful. I to just And which then

seen why ultimately, here then attach in might more have or Thank rates essentially the within Just I'd to you consumer and this the actually that accelerate you've about you. behavior, year? home love changes -- hear the confidence sort of, improve

Robert Gamgort

step and Yes. is just we Bonnie, total. look interesting what say, let's in coffee I at-home if take think is back most at a

we're So category. in a we but bigger this within coffee, leader participate at-home

I think of consumption is in forms U.S. there XXXX, what's and most coffee coffee single-serve was grew the at-home decline of its globally, a noteworthy in volume actually in all share

within on But single-serve So a perspective, volume outperform about decline coffee to from year. our notable. was at-home basis, for relative pretty at-home That's the continues coffee. X%

Our driver that mobility. biggest is the consumer biggest of -- our that belief is

see as part of at in first COVID, attach we acceleration you look rates. talked about would you the December, in If

recovery see basis, in we driven secondary the of the in it happened, rates. from there volume believe, some significant XXXX driven, at there second you looked be a on that primarily elasticity, by you in And there. mobility, what COVID, pricing was but a in slowdown half it'd that's period attach in especially was is deceleration coffee global If of this by because

problem. None coffee at-home have is do we in at-home that the this a and year us continues out System outperform Keurig long-term Why confidence is within in coffee. to of believe because year

recovery spending number category spent see people tailwinds. we at significant of adjustment year. home, and the time has that, as know home. at it of to an in straightforward is mobility And home. driver In coffee one coffee is the throughout at-home just consumption the This as improves at-home time less out fact, the as as occur We of time more it's expect are that to

Bonnie Herzog

Thank you.

Operator

Thank you. question And Falorni from final Please ladies gentlemen, Filippo our today from ahead. comes go and Citi.

Filippo Falorni

guys. morning, good Hey,

from Are is you XXXX? can terms in talk the on concentrated carryover of the for about how side? planning front, the it's beverage how or side And price And where well? pricing plan your you the increases Thank on pricing cost mainly for there pricing? much it new of is pricing On XXXX new then much pricing is as you.

Robert Gamgort

XXXX The through is through majority and in ‘XX. remind took Yes. we shows to the great in P&L you actions carryover not and way our of extensive pricing in the from all XXXX, flow that price XXXX, I'll they up that the P&L did

actions early of pricing of gaps. our So that's take packaged beverage on happening. ‘XX part additional We to did margin some the some the remaining close business in

all the right move that XXXX, we planned will have as now. of into So we flow through remainder that's that but

Operator

gentlemen, Thank conference and question-and-answer like back turn to the for I'd Ladies management you. over session. any closing team to remarks. concludes the today's this

Maria Sceppaguercio

Hi, everyone. This is Maria.

with day. connect today to you have if Have Feel love as We are to usual. We'd any. to free a take call around your questions. you afterwards good

Operator

concludes presentation. you you, And today's we for all ma'am. today's conference call. Thank thank attending This

You disconnect a wonderful may day. have now your lines, and

Keurig Dr Pepper (KDP) 23 Feb 232022 Q4 Earnings call transcript